Tax Compliance and Psychic Costs: Behavioral Experimental Evidence Using a Physiological Marker
AbstractAlthough paying taxes is a key element in a well-functioning civilized society, the understanding of why people pay taxes is still limited. What current evidence shows is that, given relatively low audit probabilities and penalties in case of tax evasion, compliance levels are higher than would be predicted by traditional economics-of-crime models. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions, seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as a facet in better understanding the tax compliance puzzle. This study analyzes the relation between psychic cost arising from breaking social norms and tax compliance using a heart rate variability (HRV) measure that captures the psychobiological or neural equivalents of psychic costs (e.g., feelings of guilt or shame) that may arise from the contemplation of real or imagined actions and produce immediate consequential physiologic discomfort. Specifically, this nonintrusive HRV measurement method obtains information on activity in two branches of the autonomous nervous system (ANS), the excitatory sympathetic nervous system and the inhibitory parasympathetic system. Using time-frequency analysis of the (interpolated) heart rate signal, it identifies the level of activity (power) at different velocities of change (frequencies), whose LF (low frequency) to HF (high frequency band) ratio can be used as an index of sympathovagal balance or psychic stress. Our results, based on a large set of observations in a laboratory setting, provide empirical evidence of a positive correlation between psychic stress and tax compliance and thus underscore the importance of moral sentiment in the tax compliance context.
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Bibliographic InfoPaper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number 2012-19.
Date of creation: Nov 2012
Date of revision:
tax compliance; psychic costs; stress; tax morale; cooperation; heart rate variability; biomarkers; experiment;
Other versions of this item:
- Uwe Dulleck & Jonas Fooken & Cameron Newton & Andrea Ristl & Markus Schaffner & Benno Torgler, 2012. "Tax Compliance and Psychic Costs: Behavioral Experimental Evidence Using a Physiological Marker," QuBE Working Papers 001, QUT Business School.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-CBE-2012-11-24 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-11-24 (Evolutionary Economics)
- NEP-EXP-2012-11-24 (Experimental Economics)
- NEP-IUE-2012-11-24 (Informal & Underground Economics)
- NEP-PBE-2012-11-24 (Public Economics)
- NEP-PUB-2012-11-24 (Public Finance)
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